Euro falls after dovish ECB monetary policy decision

Global stocks declined today as traders continued to worry about the health of the global economy. In China, the Shanghai and Hang Seng indices declined by 0.15% and 0.50% respectively while Japan’s Nikkei declined by 65 basis points. In Europe, the Stoxx, DAX and CAC declined by 0.50%, 0.60% and 0.50%. In the US, futures pointed to a lower open with the Dow and S&P expected to lose 0.30% and 0.25% respectively. Yesterday, the OECD became the latest organization to lower prospects of global growth after the IMF, World Bank, RBA, ECB and BOE did so this year.

The Australian dollar continued to rally after a few days of declines. This week’s declines happened after the RBA released the interest rates decision, which was slightly dovish. This was followed by the GDP numbers, which were lower than expected. Today’s rally happened after the release of retail sales and trade numbers. The retail sales in January rose by 0.1%, which was lower than the expected growth of 0.3% but higher than December’s decline of -0.4%. The trade surplus increased to A$4.5 billion, which was better than the expected A$2.85 billion.

In the United Kingdom, housing data released today were better than expected. In February, the Halifax house price index rose by 5.9% on a MoM basis. This was higher than the expected growth of just 0.1%. On an annual basis, the house price index rose by an annualized rate of 2.8%, which was better than the expected 1%.

The euro declined sharply after the ECB released its interest rates decision. The bank left rates unchanged, which was expected. What moved the markets was the decision that interest rates will remain unchanged, “at least through the end of 2019”. Previously, the bank had guided that rates will be hiked “at least through summer”. Before the interest rates decision, Eurostat released GDP numbers that missed the consensus estimates. In the fourth quarter, the economy expanded by 1.1%, which was lower than the expected 1.2%. In the monetary policy statement, the bank said that:

The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council now expects the key ECB interest rates to remain at their present levels at least through the end of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.

In the United States, employment numbers were not encouraging. According to Challenger, the number of job cuts in February were more than 78K. This was a bigger number than the job cuts in December, which were more than 53K. On an annualized basis, the job cuts rose by 117.2%. These numbers came a day after ADP released jobs numbers that missed the consensus estimates and a day before the official US jobs numbers are released. On the positive side, jobless claims data were better than expected. Initial and continuing jobless claims in the past week declined by 223K and 1,755K respectively. This was lower than the expected 225K and 1,775K respectively.

GBP/AUD

The GBP/AUD pair declined today to a low of 1.8645. This was lower than the weekly high of 1.8775. On the hourly chart, the pair is currently below the 21-day and 42-day moving averages. It is also above the 23.6% Fibonacci Retracement line and along the lower line of the 20-day Bollinger Bands. The RSI has dropped close to the oversold level of 30, while the ADX indicator is at 30. The pair will likely continue to move lower until the 1.8590 level, which is the 23.6% Fibonacci level.

USD/CAD

Yesterday, the USD/CAD pair rallied after the BOC monetary policy statement. It rose and reached a high of 1.3460, which was along the 61.8% Fibonacci Retracement level. Today, the pair declined slightly to a low of 1.3420. On the hourly chart, the price is higher than the short-term moving averages while the dots of the Parabolic SAR are below the price. The Bull’s Power indicator has also declined sharply as shown below. The pair will likely drop to the 50% Fibonacci Retracement level of 1.3365, before resuming the upward trend.

EUR/USD

The EUR/USD pair declined sharply after the ECB released its interest rates decision. The pair declined to a low of 1.1260, which was the lowest level since February 15. On the hourly chart, the pair’s price is along the lower line of the Bollinger Bands, while the RSI is moving towards the oversold level. The pair could continue moving downwards as traders price-in a more dovish ECB.